Cicero Policy Briefer

Issue 23, April 2008

Europe’s shrinking population: what implications for policymakers?

By Mark Twigg

The recent European Council meeting highlighted a whole host of problems facing Europe right now. They ranged from the credit crunch and problems of liquidity in capital markets, through to climate change and energy security. While all are undeniably major issues, it is strange that there was no mention of our shrinking, and rapidly aging populations. The demographic ‘time bomb’, as it has been sensationally called, presents Europeans with an even bigger ‘crunch’: a vision of a Europe with too many people in retirement (living on insufficient savings), and too few workers to make up the shortfalls. Social security systems across Europe are set to become unsustainable and face financial ruin without concerted action. Europe needs a clear strategy if it is to deal with its rapidly aging population. Unfortunately, Europe doesn’t have one.

If you look at the 20 countries in the world with the slowest growing populations, you will find that 19 of them are already in decline. What is more, 10 of those countries are to be found among the membership of the European Union. Another half dozen o r so Member States, including Slovakia, Italy, Denmark and Slovenia, while still in positive territory, are barely growing at all and will fall into decline in the coming decades.

Table 1: falling populations

This is driven in part by falling birth rates but also by migration. Many European countries are producing too few children, who then grow up to adulthood and move on as economic migrants in search of better jobs and life chances . To be fair, a lot of this migration is intra-EU. Nearly one million Poles have moved to Britain since 2004—good for Britain ’s service-based economy, which is increasingly in need of cheap labour. Not so good for Poland, which is suffering from the severe effects of a brain drain as its young and mobile get up and leave.

Such migration is actively encouraged under the EU’s founding objectives. This illustrates one of the clear frictions within European Union policy. If Europe is to be successful in promoting the liberal markets as set out in the Lisbon Agenda—through the free movement of goods, services and labour as set out in the Treaty of Rome—can it have any hope of delivering a successful regional development policy?  

It is clear that the regions most in need of development are seeing their brightest and most able head for the bright lights of London , Berlin , Paris and other major cultural and economic centres. It is a battle the EU is losing. Starved of young people, these regions—and in some cases countries—are not only starved of workers to do the jobs required by the local economy, but they find their societies are aging even more rapidly, throwing even greater pressures on social security, pensions and healthcare systems. The crunch will come within a generation or two. By 2050, the median age in countries such as Poland , Bulgaria and Slovenia will reach 52 years, placing them amongst the most rapidly aging societies on the planet. As the UK ’s pensions reforms illustrate, this is also how long it will take to ‘transition’ current unsustainable public policies. In other words, we need to be making that transition now if we are to be prepared for when the crunch comes. The failure to prepare will result in sluggish economies with slowing growth levels, weighed down by the need to meet ever growing social costs. While there are signs that Europe ’s policymakers have recognised this fact—the EU Commission’s asset management white paper does allude to the problem—there is little sign yet that the ‘political’ agenda has moved at the same pace.

Mark Twigg can be contacted on +44 (0)20 7665 9537 or click here to email.

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